Yesterday (26 February), Rolls-Royce (LSE: RR.) shares jumped 8% following the publication of its full-year 2025 results. Investors are likely wondering whether the latest numbers justify the huge run in the share price over the past year.

Rolls has been in full ‘comeback mode’ since the pandemic, and these 2025 figures underline that story. After delivering £2.5bn of underlying operating profit and £2.4bn of free cash flow in 2024, the company was already guiding high in 2025. As such, the market was primed for a big jump.

Yesterday’s update confirmed higher revenue across all divisions, a 38% rise in underlying operating profit and earnings per share (EPS) up 46%.

Alongside that, management unveiled a new £2.5bn share buyback, building on the £1bn programme they kicked off in 2024. That’s a clear sign they now see Rolls as a cash-generating machine rather than a rescue job.

What’s driving the business?

Three big engines are powering this turnaround (pun intended). Civil Aerospace continues to benefit from more long-haul flights, with large engine flying hours already above 2019 levels and airlines like IndiGo and Malaysia Airlines ordering new Rolls-powered planes.

Defence is busy too, helped by projects like the Global Combat Air Programme and exports of Eurofighter Typhoon jets. And Power Systems is riding the boom in data centres and backup power, where demand for high-end generators remains strong.

All of this is flowing through to the bottom line. Net debt has been turned into a net cash position, free cash flow has more than doubled since 2023, and returns on capital have marched higher. Dividends are back, but still modest at 9.5p a share. This gives a yield of roughly 0.54% at today’s price, with most of the reward coming via growth and buybacks rather than income.

Is it still an appealing buy?

Here’s the tricky bit for a UK investor: the share price has already gone vertical. It’s up more than 120% in a year and trades on a trailing price-to-earnings (P/E) close to 20. That’s surprisingly low, suggesting it’s only slightly undervalued at current levels. Still, expectations for further profit and EPS growth into 2026 are likely baked into today’s valuation. So it must keep beating a pretty high bar.

The main risks are clear: any slowdown in air travel, delays to defence programmes, or weaker data centre spending could hit future profits. On top of that, any unexpected supply chain or cost issues could squeeze margins.

For someone who already owns the shares, these results may strengthen the case for holding. For new buyers, though, Rolls-Royce now looks like a high-quality (but high‑expectation) growth story. Still worth considering, but no longer the bargain it was – and definitely one where you need to be comfortable with potentially volatility.

For investors seeking the next big growth story, there’s several lesser-known names on the FTSE 100 that currently look undervalued. But in today’s economic landscape, factors change rapidly — so it’s more critical than ever to keep a close eye on developments.